Given shifting attitudes, it’s harder to publicly argue in favor of offshore investing than it once was.
A steady stream of headlines in the mainstream media equate anything offshore related with tax evasion, money laundering, and other criminal activities.
A few headlines you may have seen prove my point:
If you read past the headlines, though, you’ll see statements like these even from the loudest offshore critics:
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“Most of the services the offshore industry provides are legal if used by the law abiding.” This admission came from The International Consortium of Investigative Journalists (ICIJ), which has accused “heads of state, criminals and celebrities of using secret hideaways in tax havens.”
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“Having an offshore company isn’t illegal. For some international business transactions, it’s a logical choice.” This again came from the ICIJ after it discovered “how a global industry of law firms and big banks sells financial secrecy to politicians, fraudsters and drug traffickers.”
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“The holding of money in an offshore company is generally not illegal.” It was heartening to see this recognition from The New York Times, which has consistently criticized what it considers abusive offshore arrangements.
It’s a mistake to rule out all things international in your investment strategy. The many advantages of maintaining a portion of your wealth outside the US (or wherever you live) are compelling. They boil down to these factors:
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Greater investment opportunities. Sure, the US is the world’s largest investment market, but it’s hardly the only one. And it’s a highly developed economy with a limited capacity to expand much more quickly than it does now. By contrast, in developing countries, billions of consumers are for the first time joining the middle class. And they all want the same consumer conveniences we take for granted in the US.
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Better asset protection opportunities. Domestic strategies and structures to deter legal predators aren't always effective. International investments and structures offer better protection against threats such as judgments, civil forfeiture, exchange controls, and political instability. If you hold assets outside the country you live in, a creditor can’t easily seize them. For instance, no country automatically enforces US civil judgments, and many countries don't enforce them at all.
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Increased privacy. International investments offer immense practical privacy advantages. They largely avoid US asset-tracking networks, which let investigators locate domestic wealth at the click of a mouse. "No recoverable assets" usually means no lawsuit, especially if the attorney handling the matter is paid based on how much they can recover. What’s more, other countries restrict disclosures from financial institutions, except under narrow circumstances. The wholesale data sharing between banks, information brokers, and the government that has become commonplace in the US is banned in virtually every other country. Once you've moved funds internationally, your assets are invisible to all but the most determined domestic investigators.
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Investment continuity. September 11, 2001 demonstrated the vulnerability of the US financial infrastructure. US securities markets were closed for four days after the attacks on the World Trade Center. During that time, US investors with only domestic bank or brokerage accounts couldn’t trade. But US investors with foreign accounts could trade foreign securities on foreign exchanges.
Probably the best summary of the “case for offshore” comes from the late asset manager Barton Biggs. In his book Wealth, War & Wisdom, Biggs analyzed the successes and failures of wealthy families caught up in war and political chaos to protect their assets. His conclusion was that one simple and consistently successful strategy during both world wars and in hyperinflation was international diversification: keeping a portion of your wealth outside your country of residence.
The bottom line is that despite the anti-offshore frenzy orchestrated by the media and government, it’s perfectly legal for Americans to invest and do business internationally. Remember that the next time you see a headline equating “offshore” with tax evasion, money laundering, and other criminal activity.
Just make sure you understand what you’re doing, or hire a professional to help.
